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Third Time’s The Charm: Three Rivers Selling Again In Permian

Three Rivers Operating III, one of the last large Delaware Basin operators, is up for sale and an analyst said the company could command a value of up to $1 billion.

“We have hired RBC [Capital Markets] and JP Morgan to run a process,” a company official said.

CEO Mike Wichterich is set to speak at Hart Energy’s DUG Permian on April 5, where his presentation will note the sale.

Three Rivers, based in Austin, is financially backed by private-equity firm Riverstone Holdings LLC. The company’s Delaware position encompasses about 57,000 net acres, said Subash Chandra, an analyst at Guggenheim Securities LLC.

“A $1 billion valuation could be achieved, if not exceeded” by the sale, Chandra said, “and expect there will be significant interest in the asset from public companies, as there are likely only a handful of available private assets of that size remaining.”

A $1 billion valuation would represent a price of $17,500 per acre, assuming no value for production. Guggenheim said public records show only four wells were completed on the acreage in 2016, two of which were vertical.

The nearest, recent transaction to the Three Rivers acreage was the December purchase of Kimmeridge Energy by PDC Energy Inc. (NASDAQ: PDCE) for $1.5 billion. The deal was valued at $22,000 per acre and included 7,000 barrels of oil equivalent per day of production, Chandra said.

At a price point of $22,000 per acre, Three Rivers could sell for up to $1.3 billion.

“We also note the very blocky nature of Three Rivers’ acreage, similar to the nature of Kimmeridge’s position,” he said.

Devon Energy Corp. (NYSE: DVN) and ConocoPhillips (NYSE: COP) are the nearest offset public operators of scale and Anadarko Petroleum Corp. (NYSE: APC) is “likely at the top of the list of potential acquirers for all Delaware Basin transactions given their sizable cash balance,” Chandra said.

“They are in the neighborhood ‘a block over’ and may have limited opportunities to go after transactions of this scale moving forward.”

Wichterich’s first iteration of Three Rivers Operating Co., a Midland Basin-focused E&P, also drew large and ultimately lucrative interest. In 2012, Wichterich’s company sold its 200,000 net acres to Concho Resources Inc. (NYSE: CXO) for $1 billion. The second Three Rivers Operating Co. II LLC also sold for about $1 billion.

At a Hart Energy DUG event in 2015, after Riverstone backed Three Rivers III with a $500 million commitment, Wichterich predicted that the “Southern Delaware is what’s next.”